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Short Interest Moves In Boeing And Other Defense Stocks (BA, GD, TXT)

Between the August 30 and September 15 settlement dates, the number of shares sold short in defense stocks Boeing (NYSE: BA), General Dynamics (NYSE: GD) and Textron (NYSE: TXT) rose by double-digit percentages.

In that period, the effects of the federal budget sequester were well established, but the latest tensions over the Syrian situation were coming to a head. Many short sellers got out of Alliant Techsystems (NYSE: ATK), Huntington Ingalls Industries (NYSE: HII) and TransDigm (NYSE: TDG). Their short interest dropped by more than 10 percent.

Here we take a quick look at how Boeing, General Dynamics and Textron have fared and what analysts expect from them.

Boeing

This Chicago-based aerospace and defense company saw short interest rise more than 34 percent in early September to more than 9.38 million shares. That was the greatest number of shares sold short since the end of June. Short interest was a little more than one percent of the float.

Various problems with Boeing 787 Dreamliners continued to pop up in the period. The company currently has a market cap of more than $89 billion and a dividend yield near 1.7 percent. Note that the long-term earnings per share (EPS) growth forecast is almost 13 percent.

Of the 25 analysts who follow the stock that were surveyed by Thomson/First Call, 11 rate it at Strong Buy and another 11 also recommend buying shares. Their mean price target, or where they expect the share price to go, represents more than seven percent potential upside. That target would be a new multiyear high.

The share price is up about 15 percent in the past month and near the recent 52-week high. Over the past six months, the stock has outperformed not only competitors Lockheed Martin (NYSE: LMT) and Northrop Grumman, but the Dow Jones Industrial Average as well.

General Dynamics

This Falls Church, Virginia-based aerospace and defense company saw short interest rise more than 14 percent in the period to about 3.78 million shares, or more than one percent of the float. That ended five consecutive periods of declining short interest. The days to cover rose to more than three.

General Dynamics won a number of contracts during the period. The company has a market cap of about $31 billion and a dividend yield near 2.6 percent. Note that the long-term EPS growth forecast is near six percent and the return on equity is in negative territory.

Out of 20 analysts polled, 14 recommend buying shares, five of them rating shares at Strong Buy. The analysts see some headroom for the stock, as their mean price target is almost eight percent higher than the current share price. That consensus target would be a new multiyear high.

The share price is more than six percent higher than a month ago and up about 24 percent since the beginning of the year. The stock has underperformed competitors Boeing and Lockheed Martin over the past six months, but it has outperformed the broader markets.

The number of shares sold short in this Providence, Rhode Island-based company increased almost 14 percent in the period to about 6.48 million, or more than two percent of the float. That was the highest level of short interest since June. The days to cover pulled back to less than three.

This maker of helicopters, armored vehicles and various industrial products teamed up with Lockheed Martin in the period. Textron has a market cap of less than $8 billion and a dividend yield of about 0.3 percent. The long-term EPS growth forecast is about eight percent. The return on equity is more than 16 percent.

Eight of the 13 analysts polled recommend buying shares, and the rest recommend holding them. The analysts' mean price target indicates more than 11 percent upside potential. Their consensus target also would be a new multiyear high.

Shares have encountered resistance around $29 since last spring. The share price is more than six percent lower than six months ago, in which time the stock has underperformed competitors General Electric (NYSE: GE) and United Technologies.

At the time of this writing, the author had no position in the mentioned equities.